USD/JPY rallies further, nears 150.00 on the aftermath of BoJ’s decision
- The Yen extends losses to fresh multi-week lows as the BoJ decision disappointed investors.
- Ueda cast doubts about a rate hike in the coming months and sent the Yen lower.
- Investors will be observing US PCE Inflation today for further clues on the Fed's monetary policy.
The US Dollar keeps marching higher against a vulnerable Japanese Yen on Thursday as the Bank of Japan’s Governour, Kazuo Ueda, cooled hopes of immediate rate hikes, following the bank’s monetary policy decision.
The BoJ maintained its key interest rate at 0.5%, as widely expected, and Ueda reiterated the bank’s commitment to keep tightening its monetary policy but failed to give any further clues about the timing of the next rate hike.
The Yen weakens as BoJ Ueda’s comments fall to the dovish side
Ueda raised inflation projections but assessed that trade uncertainty remains elevated, despite the recent pact with the US, and called for patience to assess the economic impact of US tariffs.
The bank’s chief also affirmed that the Yen is not “deviating much from the BoJ’s view,” suggesting that the bank is comfortable with a weaker JPY and curbing hopes of an immediate rate hike further. The Japanese currency declined against its main peers after Ueda’s press release.
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The USD, on the other hand, remains buoyed by a combination of solid macroeconomic figures, heightened expectations that the Fed will keep interest rates higher for longer, and recent trade deals, which, according to the market reaction, have been more beneficial to the US than to its trading partners.
The focus today is on the US PCE Prices Index, the Fed’s inflation gauge of choice, which is expected to confirm that price pressures remain sticky above the 2% target, strengthening the case for the Fed’s hawkish stance.
Bank of Japan FAQs
The Bank of Japan (BoJ) is the Japanese central bank, which sets monetary policy in the country. Its mandate is to issue banknotes and carry out currency and monetary control to ensure price stability, which means an inflation target of around 2%.
The Bank of Japan embarked in an ultra-loose monetary policy in 2013 in order to stimulate the economy and fuel inflation amid a low-inflationary environment. The bank’s policy is based on Quantitative and Qualitative Easing (QQE), or printing notes to buy assets such as government or corporate bonds to provide liquidity. In 2016, the bank doubled down on its strategy and further loosened policy by first introducing negative interest rates and then directly controlling the yield of its 10-year government bonds. In March 2024, the BoJ lifted interest rates, effectively retreating from the ultra-loose monetary policy stance.
The Bank’s massive stimulus caused the Yen to depreciate against its main currency peers. This process exacerbated in 2022 and 2023 due to an increasing policy divergence between the Bank of Japan and other main central banks, which opted to increase interest rates sharply to fight decades-high levels of inflation. The BoJ’s policy led to a widening differential with other currencies, dragging down the value of the Yen. This trend partly reversed in 2024, when the BoJ decided to abandon its ultra-loose policy stance.
A weaker Yen and the spike in global energy prices led to an increase in Japanese inflation, which exceeded the BoJ’s 2% target. The prospect of rising salaries in the country – a key element fuelling inflation – also contributed to the move.
Author
Guillermo Alcala
FXStreet
Graduated in Communication Sciences at the Universidad del Pais Vasco and Universiteit van Amsterdam, Guillermo has been working as financial news editor and copywriter in diverse Forex-related firms, like FXStreet and Kantox.
